Pakistan Poverty Assessment

Pakistan Poverty Assessment

Concluding remarks at the World Bank Seminar on Pakistan: Poverty Assessment
held at Karachi on January 7, 2003.
I would like to divide my remarks this morning in three parts. First, I
would like to present the rich empirical evidence based on a cross section of
developing countries built across time identifying the factors through which
poverty can be reduced. Second, I would dwell on the main pillars of the Poverty
Reduction Strategy which this Government has put together through broad
stakeholder consultations in the provinces, districts, with academia, civil society,
Government representatives, media, businessmen etc. Finally, I would share my
own thoughts, as a development economist, about the elements which need to be
strengthened in Pakistan to bring about significant changes in poverty profile of
this country.
Global Experience
It has now become abundantly clear that accelerated growth per-se is
necessary but not sufficient condition for bringing about sustainable poverty
reduction. There are other complementary factors which have to accompany
higher growth. The most important of these is investment in human development
– education, training, literacy, health, drinking water, nutrition, population
planning. Countries which have neglected human development may achieve
some spurt in growth and poverty reduction for a short period of time but these
gains will not last long. Growth together with investment in human development
offers a much better chance for alleviating poverty. But even then, some
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segments of population living in remote, isolated areas and marginalized lands or
living without any tangible assets other than their labor may require targeted
interventions by the government to create opportunities for them to earn
livelihood. It has also become apparent that in every country there would be
highly vulnerable groups who would need social protection and social safety nets.
Thus if a country is able to put together these four factors – accelerated growth,
investment in human development, targeted poverty interventions and social
protection – the probability of achieving reduction in the incidence of poverty
becomes quite high.
China is one of the success stories which has integrated itself into world
trade, opened up its doors to foreign direct investment and thus attained 8 percent
annual growth and brought poverty down to less than 10 percent of the
population. But China had also reached high levels of literacy and health
outcomes, low fertility rates. At the same time the poorer provinces and regions
had been specially targeted for direct interventions aimed at enhancing agriculture
productivity and rural incomes and providing physical and social infrastructure.
Social safety nets in China, inherited from the communist days, though are
becoming weak but are still much better compared to other developing countries.
Market failures are tackled by a strong government. Thus we can see that this
combination of growth, investment in human development, targeted interventions
and social safety nets along with a strong government can produce the right
results.
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Strategy for Pakistan
The Interim Poverty Reduction Strategy Paper (IPRSP) produced in the
year 2000 spells out the four pillared strategy for poverty reduction in Pakistan.
This paper will soon be finalized after endorsement of the newly elected
representatives and will form the basis for policies, institutions and investment for
poverty reduction.
The first pillar of this strategy is macroeconomic stabilization and
resumption of growth. By 1999, the public debt of Pakistan had become
unsustainable, public debt servicing pre-empted more than half of the revenues,
and external and domestic debt exceeded the country’s GDP. The country had
faced a full payments crisis in 1998, investor confidence in the economy was at
lowest ebb, links with international financial community were disrupted, and the
reserves were so low that the country was at the brink of default. This situation
had to be rectified and a credible economic program had to be put in place to get
the economy out of the crisis and back on the track. The results of this effort
three years later are obvious to every one. Inflation is less than 4 percent, fiscal
deficit has been brought down to 5 percent, external debt indicators have
improved, public debt servicing has declined, domestic interest rates have reached
all time low, exchange rate is stable and appreciating, exports are growing at
annual rate of 16 percent, tax revenues have exceeded their targets, and foreign
reserves are touching about $ 10 billion or almost a year’s imports. This all round
and broad based improvement in macroeconomic indicators has led to
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upgradation of country’s credit rating. Macroeconomic stabilization is the
foundation upon which resumption of economic growth can take place.
The second pillar of the strategy is improved governance. The key
ingredient of the governance agenda is the devolution plan whereby
administrative, functional and financial responsibilities for delivery of social
services are delegated to the district governments. Demand-driven development
projects will be planned and executed by the direct beneficiaries rather than thrust
upon them by the government agencies working from the Provincial and Federal
headquarters in splendid isolation. The other practices which have been adopted
are accountability, transparency, predictability and level playing field for all the
players. Discretionary powers have been curtailed and rules and regulations are
enforced. Merit-based appointments have become the norm and even Assistant
Sub Inspectors of Police are selected through Public Service Commission. No
SRO has been issued to favor one single individual or group to the disadvantage
of others. Civil Service, Police and Judicial reforms have been initiated but will
take a long time to come to fruition.
Structural reforms form the third pillar of the strategy. Broad based
reforms in tax administration, trade liberalization, financial sector and
privatization form the core. In tax administration, Central Board of Revenue is
being restructured, tax net and tax base are being widened and the direct contact
between tax collector and tax payer is being eliminated. Trade liberalization has
resulted in tariff rationalization, removal of various restrictions from exports and
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imports and deregulation. Financial sector reforms have already resulted in a
sound and healthy banking system, a buoyant stock market, a growing corporate
debt market, a streamlined non banking financial institution structure and
strengthening of supervision and regulation. Privatization process has been
provided a legal framework under which transactions take place in an open and
transparent manner. Public Corporations and banks were sold during the last
three years and Rs 36 billion realized as the proceeds. Unlike the past, none of
the transaction was challenged in the courts of law and the market confidence in
the process is quite high. Those who argue that we are selling blue chip public
sector companies should realize that these companies have been causing an
annual budgetary loss of Rs 100 billion. Is it justifiable to keep 100,000 persons
employed in these Corporations while the rest of the population suffers from lack
of budgetary resources for basic necessities such as education, health, drinking
water etc.? Can you imagine how much good it will do to our social indicators if
we had allocated even one half of the losses suffered by these corporations
towards human development?
The fourth pillar of the strategy is poverty targeted interventions. The
prominent among them are Education Sector Reforms, Health for all, Population
planning, Zakat, Khushali program for employment generation and works
program, Food Support program and Khushali Bank. While Education, health
and population planning cover the entire population the other interventions are
targeted at the poor. Zakat program has been revamped to provide financial
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grants to the beneficiaries to start small enterprise or other income generating
activities. Food Support program is aimed at subsidized wheat flour to those
below a certain threshold of monthly income. Khushali program is allocated to
the local governments to create and improve physical infrastructure and also
generate employment. Khushali Bank is a micro finance institution which
provides small loans to the poor under supervised group guarantee scheme. All
these initiatives have begun to take shape in the last one or two years and it will
take some time before they start yielding dividends.
Agenda for the future
The formulation of strategy is the easy part but implementation of the
strategy has always been weak in Pakistan. In order to implement this strategy at
least five points need to be considered.
(a) Political ambivalence about poverty whereby the rhetoric is all
thundering but the actions are missing has to give way to a strong
political commitment in words and deeds. The Musharraf Government
has explicitly brought poverty reduction to the forefront and made a
strong commitment. But poverty cannot be reduced in a span of 1 or 2
or 3 years and its correlation with growth is quite high. Pakistan
witnessed significant poverty reduction from almost 40 percent to 18
percent in a period when GDP growth rate was averaging 6 percent.
But in the 1990s when the growth rate slowed down to 3 to 4 percent
there has been a resurgence of poverty to 34-35 percent. Thus a long
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term action plan supported by all successive governments and
implemented in a continuous and consistent manner will result in its
reduction. We cannot expect results overnight and have to work hard
and work sincerely for an extended time to reach this goal.
(b) Decentralization and delegation of powers: It has become abundantly
clear that local communities are willing to share financial burden of
social services if they can see that the benefits will accrue to them
directly. But if they find that the user charges, taxes and fees
disappear in a black box at Karachi or Islamabad they will be most
reluctant to pay. The demand-driven nature of planning and
accountability of results improve the cost effectiveness of
expenditures. Thus the delivery of services can become efficient and
accessible to the poor if they are operated and managed locally.
(c) Limited Institutional capacity: If we assume that there are no leakages
or waste Pakistan still faces a serious constraint in form of limited and
weak capacity of institutions to plan and deliver services. This
capacity should be built at the local level and supplemented by publicprivate
community partnerships. There are excellent examples such
as The Citizens Foundation Schools in the backward areas of Lyari
where the private businesses and individuals donors have contributed
finances to a Non-governmental Organization for educating the kids of
the poor families. In Punjab, Government school buildings have been
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made available to private sector and NGOs for using them for the
second shift schools. Such examples abound throughout the country.
The recent efforts of Human Development Foundation to build
capacity at the district level will go a long way in resolving this
constraint.
(d) Lack of access to justice, police and executive agencies – while robust
informal social networks and non-profit Civil society organizations
can take care of the needs of the poor in the areas of education and
health there is no substitute available for justice, police and executive
agencies of the government. Access to these agencies and their
functionaries is almost non-existent and is a major source of
helplessness, and lack of empowerment among the poor. Unless the
mind-set and attitude of the Government functionaries is changed
radically the poor will remain voiceless, their grievances will remain
unaddressed and their vulnerability will not be tackled in any
meaningful way.
(e) Gender face – Women in Pakistan are worse off among the poor
compared to men. In a country where only 17 percent of female
population participates in labor force, where female enrolment ratios
are dismally low and where health indicators are worse for the female
population poverty and vulnerability will remain a serious issue.
Economic literature has amply documented that there is no other
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investment which fetches higher rate of return than investment in
female education. This return does not take into account all the
externalities associated with female education in form of better health,
nutrition outcomes, lower fertility rate and better citizenship.
Bangladesh exemplifies the enormous benefits of female education
and labor force participation. Government there has not done what it
was supposed to do but it was the non-governmental organizations
such as BRAC who were instrumental in spreading their schools
throughout the rural areas. The results are simply astounding. Until
we pay attention to uplift the status of 50 percent of our population I
am not convinced that we will be able to make a significant break
through in poverty reduction.
Conclusion
To conclude, Pakistan has built its poverty reduction strategy on the basis
of its own historical experience and incorporated the lessons of global experience
also. The strategy has the inputs of all stakeholders but it needs strong political
commitment, real devolution of powers to grass roots level, a vibrant privatepublic-
community partnerships for delivery of services, change in the
bureaucratic values and norms and a focus on gender disparities. If these issues
are resolved sooner than later we can embark on a path of sustainable poverty
reduction.

Source: //http: sbp.org.pk/about/speech/2003